SPECIAL NEEDS PLANNING & SPECIAL NEEDS TRUSTS

ESTATES, TRUSTS & TAX

ABOUT SPECIAL NEEDS PLANNING

If you currently provide care for a child or loved one with special needs or supplemental needs (such as mental or physical disabilities), it is likely that you are concerned about making sure they have the best life possible, and also what may happen to them when you are no longer able to provide and care for them.

While you can certainly make sure that they are financially secure, often times providing for the person financially may prevent them from qualifying for essential benefits under the Supplemental Security Income (SSI) and Medicaid programs. However, these public programs and government benefits provide only for the bare necessities such as food, housing and clothing. But if parents leave any assets to their child who is receiving public benefits, they run the risk of disqualifying the child from receiving them. Fortunately, the government has established rules allowing assets to be held in trust, called a Special Needs Trust or Supplemental Needs Trust for a recipient of SSI and Medicaid, as long as certain requirements are met.

HOW DOES A SPECIAL NEEDS TRUST WORK?

The Law Offices of Jeremy A. Wechsler LLC can help you craft a Third Party Special Needs Trust (also known as a Supplemental Needs Trust) so that government benefit eligibility is preserved while at the same time providing assets that will meet the supplemental needs of the person with a disability (those that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid). The Special Needs Trust can fund those additional needs. In fact, the Special Needs Trust must be designed specifically to supplement, not replace public benefits. Parents should be aware that funds from the trust cannot be distributed directly to the disabled beneficiary. Instead, it must be disbursed to third parties who provide goods and services for use and enjoyment by the disabled beneficiary.

ARE THERE DIFFERENT TYPES OF SPECIAL NEEDS TRUSTS?

Yes. There are three varieties of special needs trusts.

Self-Settled Special Needs Trust (First Party Special Needs Trust):

This trust is created by the special needs person for his or her own benefit. The government must be listed as the primary beneficiary of the trust to payback the state and/or federal government for public benefits provided. This is called a payback trust. It is used when an individual under the age of 65 receives an inheritance outright, requires a structured-settlement / personal injury settlement, equitable distribution, or alimony.

Third Party Special Needs Trust:

These trusts are created by a third party (i.e., a parent) for the benefit of a special needs person. Third party special needs trusts are preferable to first party special needs trusts because the government is not named as a beneficiary of any unspent funds. Therefore, you can provide for your loved one while he or she is receiving public benefits, and any unspent funds from the trust go to your other relatives upon the death of the family member with special needs.

Pooled Special Needs Trusts:

Managed by a non-profit organization, a pooled trust is professionally managed for more than one special needs person with a similar special need. The advantage is that the pooled trust organization knows how to manage the trusts, and knows the issues and complexities of the particular special need.

WHAT CAN FUNDS FROM A SPECIAL NEEDS TRUST BE SPENT ON?

The Special Needs Trust can be used for a variety of life-enhancing expenditures without compromising your loved ones’ eligibility such as:

Annual check-ups at an independent medical facility
Attendance of religious services
Supplemental education and tutoring
Out-of-pocket medical and dental expenses
Transportation (including purchase of a vehicle)
Maintenance of vehicles
Purchase materials for a hobby or recreation activity
Funds for trips or vacations
Funds for entertainment such as movies, shows or ballgames.
Purchase of goods and services that add pleasure and quality to life: computers, videos, furniture, or electronics.
Athletic training or competitions
Special dietary needs
Personal care attendant or escort

CONCLUSION

Special Needs Trusts may be a critical component of your estate plan if you have disabled beneficiaries in your family. Special Needs Trusts must be crafted carefully and under the guidance of an estate planning attorney. If you would like more information on whether a special needs trust is required in your estate plan, please contact us today to schedule your consultation at 1.800.773.0680.

Practicing Attorneys

Kyong Ha Growney

Craig F. Turet